How to Calculate Early Withdrawal on a Retirement IRA

by Michael Keenan

When you take an early distribution from an individual retirement account, you may owe taxes and penalties, depending on which type of IRA from which you take the distribution: a tax-deferred IRA or a Roth IRA. The income taxes due on your early withdrawal depends on your income tax rate, which you can find using the tax rate schedules published by the IRS in Publication 17. The early withdrawal penalty applies to the taxable portion of the distribution unless an exception applies, such as college costs for yourself or a dependent, a permanent disability, $10,000 for a first house or medical premiums while unemployed.

Early Tax-Deferred IRA Withdrawal

Subtract the value of your early withdrawal penalty exemption, if any, from the amount of your distribution to calculate the amount of your tax-deferred IRA early withdrawal subject to the early withdrawal penalty. For example, if you took out $16,000 but used $6,000 for qualified college education costs for your daughter, only $10,000 is subject to the early withdrawal penalty.

Multiply the portion of your tax-deferred early withdrawal by 10 percent to calculate the early withdrawal penalty. In this example, multiply 10 percent by $10,000 to find your early withdrawal penalty equals $1,000.

Multiply your entire tax-deferred IRA early withdrawal by your income tax rate. Include both the portion of the distribution subject to the early withdrawal penalty and the portion exempted. For this example, if your income tax rate equals 24 percent, multiply $16,000 by 0.24 to find you owe $3,840 in income taxes.

Add the early withdrawal penalty to the income taxes due to find the total taxes and penalties on your early tax-deferred IRA distribution. In this example, add your $1,000 penalty to the $3,840 in income taxes to get a total of $4,840 in taxes and penalties.

Early Roth IRA Withdrawal

Subtract the value of all your contributions in the Roth IRA from the amount of your distribution to find the amount of earnings withdrawn. If you have more contributions in your Roth IRA than the size of your distribution, stop. You owe no taxes or penalties because contributions come out tax-free. For example, if you take out $20,000 but you only have $15,000 in contributions, you remove $5,000 in earnings.

Subtract the value of your early withdrawal penalty exemption, if any, from the amount of earnings in your Roth IRA distribution to calculate the amount of your Roth IRA early withdrawal subject to the early withdrawal penalty. For this example, if you used $2,000 for qualified college education costs for your daughter, only $3,000 is subject to the early withdrawal penalty.

Multiply the portion of your Roth IRA early withdrawal by 10 percent to calculate the early withdrawal penalty. In this example, multiply 10 percent by $3,000 to find your early withdrawal penalty equals $300.

Multiply your earnings from your Roth IRA early withdrawal by your income tax rate. Include both the earnings subject to the early withdrawal penalty and the earnings exempted. For this example, if your income tax rate equals 24 percent, multiply $5,000 by 0.24 to find you owe $1,200 in income taxes.

Add the early withdrawal penalty to the income taxes due to find the total taxes and penalties on your early Roth IRA distribution. In this example, add your $300 penalty to the $1,200 in income taxes to get a total of $1,500 in taxes and penalties.

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About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."